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Build a Better Budget in 2013

Lose weight. Go to the gym three times a week. Stick to a budget. Our New Year’s resolutions can end up feeling as restrictive as a straitjacket, so it’s no wonder we often don’t follow through on them. But budgeting doesn’t have to handcuff you. Instead, it should give you permission to spend on what’s most important to you. “Personal finance is more personal than finance,” says Tim Maurer, a certified financial planner in Baltimore, Md. “And nowhere is that more true than in budgeting.” You make the rules, so craft them to help you succeed.

TOOL: Budget Worksheet

Set goals. Working out a theoretical budget is great. But if you’re having trouble putting it into practice, you may lack motivation. Discipline is easier to embrace when it comes with a reward. Your goal might be to save enough money for a Caribbean vacation or a down payment on a new crossover. Or maybe you just want to stop living paycheck to paycheck.

If you have a big monetary target -- say, to save $30,000 for a down payment on a house -- break it into smaller goals so that you can see the light at the end of the tunnel. Farnoosh Torabi, author of Psych Yourself Rich, advises sharing your goals with someone; like going to the gym, financial goals are easier when you have a buddy to help keep you on track.

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Account for all your expenses. You may know what you pay every month for housing, utilities and your car loan, but what about clothes and eating out? Do semiannual expenses such as insurance and gifts throw you into a financial tailspin? You’re not alone.

To see the big picture, you’ll have to take stock of your spending. That’s easy if you track income and expenses at a budgeting site, such as Mint (see Best Online Money Management Tools). If you aren’t already using a budgeting tool, tally up all the big expenses that don’t come every month and estimate your annual costs. Divide that by 12, and add the amount to your monthly budget. Then review credit and bank statements for several months to see what you’re spending. After that, you can set realistic targets for monthly outlays and savings. Don’t forget to set something aside for unexpected expenses.

Build in wiggle room. If you’re overspending every month, it may be because you haven’t built in a buffer zone for each category. Adding a buffer means you won’t bust your budget if you spend more than you expect. Whenever you spend less, the buffer-zone money can go to savings or toward a splurge. (And if you’ve put your savings on autopilot, you’ll feel freer to spend the money that’s left over.) “Give yourself permission to change your budget if you get a raise or your tastes change,” says Torabi. “A budget should mirror your life at the moment, not keep you stuck in time.”

Make a commitment. Plan a time each week to sit down, track your spending and see how you’re doing. If you wait, you’ll fall behind and you won’t be able to adjust spending to stay on track. And let’s face it: You have to make trade-offs to reach your goals. If you spend too much on eating out, cook more gourmet dinners at home. Change your route to work so you don’t pass the Starbucks every day, or head to the gym instead of happy hour more often. Before you know it, budgeting will become a habit, and you and your wallet will be happier for it.

This article first appeared in Kiplinger's Personal Finance magazine. For more help with your personal finances and investments, please subscribe to the magazine. It might be the best investment you ever make.